Session on “A Practitioner’s Insight on Manager Selection” by Ms. Geeta Kapadia, CFA

Contributed By : Tarun Gopal


The term “Manager Selection” is always a buzzword in the universe of institutions like Pensions, Insurance, Foundations, and Endowments etc., as this decision pretty much defines the fate of their Investment goals. To share some insights and best practices, the Delhi chapter of CFA Society India organized a session on Manager Selection on 9th Aug 2019, which was conducted by Ms. Geeta Kapadia, CFA. She’s a senior Investment strategist at Yale New Haven Health System, where she is responsible for assets under management (AUM) of approx. $3 billion.

In this session, Ms. Kapadia shared some valuable insights of how she and her team select the manager for their Investment portfolio at Yale New Haven and most importantly what they look for in these managers which form the basis for their judgment.

The session started with Ms. Kapadia’s three golden mantras that they look for in the managers at Yale New Haven and the associated questions, which one needs to address before selecting/ rejecting a manager. These were as follows:

  1. Experience:
    • How long have they managed or been managing assets?
    • Over what cycles have they managed these assets?
    • What sort of firms do these portfolio managers have worked in the past?
    • Do they have experience in owning and managing a firm?
    • What are their personal management/ mentoring styles?
  2. Alignment:
    • What’s the client base of this manager? How long have their longest clients been on board?
    • Does the firm have an advisory board and who’s on it?
    • How do their investment professionals get compensated?
    • How are fees determined and shared?
    • What is their strategy’s stated capacity and has it changed?
  3. Edge:
    • What does the manager say which makes them different? And what are the factors which actually makes them different?
    • Which other manager(s) have a similar process/ philosophy?
    • What differentiates this manager from its peers in terms of performance and strategy?
    • What do their clients and competitors do?

Ms. Kapadia emphasized that these were the general considerations which everybody should look for.” But even these considerations don’t define the success and desired goals of the portfolio”, she added. She then went on and shared some examples from her personal experience where this selection process didn’t work and defeated the purpose. She also shared the lessons she has learned from these instances which has guided in her career.

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Manager A: PM Failure


  • This manager was one of the top 50 hedge fund which was founded in 1991 and was operating as Fund-of-fund in U.S.
  • Firm was handling around $3 billion of AUM through a single office.
  • This was a focused small team, managing assets for many years together.
  • In 2013, founder and CIO were charged with solicitation.
  • Afterwards, the firm continued business as usual.
  • Firm then experienced immediate redemption and shut down in 2014.

Lesson Learned:

All the due-diligence in the world cannot guard against one-off events.

Since these events doesn’t form part of the due-diligence process it’s hard to predict events like these which could affect the manager’s reputation and triggers redemption.

Manager B: Headline Risk


  • This manager was also with a hedge fund which operated as Fund-of-fund in U.S., with $98 billion AUM and growing.
  • Firm was frequently in news due to a Managing Partner’s interest in politics.
  • In 2017, Trump White House announced that this Managing Partner would join the administration.
  • A sale of this Manager B firm to two Chinese financial firms was announced in 2017.
  • Managing Partner stepped down from his role at Manager B firm to join the administration.
  • The announced sale was then cancelled and Managing Partner returned to the firm.
  • These news triggered redemptions resulting in liquidation at unfavorable terms.

Lesson Learned:

Uncertainty breeds more uncertainty.

With this example, Ms. Kapadia stressed on the uncertain events which could spoil the investment goal that you have been framing with a particular manager, with just a headline in the news or bad mouthing. She also stressed upon some additional due-diligence related to key personnel of a manager and their associated outside interests, such as politics, which could deviate that manager’s focus entirely and could further hurt the investment goals.

Manager C: Headline Risk


  • This manager was with a hedge fund focused on credit long/short investing.
  • Firm was little known to the retail investors with $4 billion in AUM.
  • In 2019, a Bloomberg article came out raising concerns about the founder and Portfolio Manager.
  • Firm denied allegations made in that article.
  • Bloomberg then made few small corrections.
  • By this time, most of the damage was already done.

Lesson Learned:

It’s better to give up some upside rather than be the last one out of the door.

With this example, Ms. Kapadia shared her learning of not just focusing on upside potential of returns with the manager, but rather taking a timely judgment call to get out of the relationship.

Manager D: PM Departure


  • Portfolio Manager(PM) and supporting analyst team had recently joined a large, global investment management firm with a parent company in U.S.
  • This PM was highly regarded and was considered as a star PM in the investment world.
  • Kapadia and her team personally went to congratulate him and his team.
  • PM acted as a boutique team within the large firm, but this wasn’t a sustainable arrangement from parent company’s perspective.
  • PM attempted to negotiate with the firm.
  • None of the analysts were senior enough to lead the team in absence of PM who had decided to depart by that time.
  • Redemption then quickly followed the news and the firm had to close its strategy.

Lesson Learned:

Consider who the ultimate owner of the firm is and what their incentives are.

With this example, Ms. Kapadia stressed upon the importance of not following a particular person for the investments objectives, in this case the star PM of the firm. Always consider the scenario and the impact it might lead to the investment performance in the event of departure of these key personnel.

With these examples, Ms. Kapadia reflected again their own factors which they consider at Yale whenever they have to select a manager for their portfolio. These are Experience, Alignment and Edge. In addition to this she also shared that they usually look for the managers who are comparatively smaller in size and are operating under the umbrella of around $2 billion of AUM.

Overall, this was a great and informative session where participants had an amazing interaction with Ms. Kapadia. Many of them asked their real life issues they face in their own professional arena and asked for her opinion and how she would have handled those scenarios.


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Article on “Importance of Sustainable Investing” by Mr. Navneet Munot, CFA


Contributed By : Navneet Munot, CFA , CIO, SBI Funds Management Pvt Ltd and Chairman, CFA Society India

  •  There is a need for large fund houses to take the lead on sustainable investing
  •  Long-term growth of the economy will happen when firms will focus on sustainability

Mutual funds are trustees of people’s money and owe a fiduciary duty—first to their investors and then to the community at large. It can be best served, not by trying to maximize short-term profitability, but by ensuring optimization of long-term return and risks.

As part of our fiduciary responsibility, value system and risk management strategy, it is our core belief that a business run in the best interests of all stakeholders seldom fails to create lasting value for its investors. Investing is an approach where apart from financial considerations, one looks at environmental footprint, social impact and governance factors of the investee companies. Companies focussing on triple bottom line (people, planet and profits) deliver sustained returns over a long period.

Environmental risks are bound to gain prominence in India. As per the World Health Organization (WHO), India inhabits 14 of the 20 most polluted cities of the world. It ranks among the top three nations to see the highest number of deaths from air pollution. The country is fast pacing towards becoming a water-stressed zone. As per a NITI Aayog study, 40 cities are likely to face drinking water shortage over the next decade. There are serious concerns about soil degradation in India and increased oceanic acidity world over. Rising inequality, with poor literacy and human development index in a democratic society, has the potential to creates risks for businesses as well.

Even as India is growing faster than most other economies, it is still a $2,000 per capita country and is yet to catch up meaningfully in the income ladder. In the process, the resource intensity of consumption is bound to rise. If history is any guide, ignoring the sustainability aspect can be damaging. China serves as a classic example. While high growth facilitated dramatic increase in consumption levels, it led to rapid degradation of the ecosystem, choking pollution and rising social tensions. Eventually, their policymakers had to shut thousands of manufacturing plants.

Some of the policy developments in India too, such as Delhi’s experiment with odd-even cars, move towards BS-VI compliance and now electric vehicles, plastic ban in Maharashtra, plant closures in Karnataka around Bellandur lake were in response to rising pollution. We witnessed social backlash, leading to a copper plant closure in Tamil Nadu, Supreme Court’s ban on liquor sales on highway and cancellation of coal blocks allocation (with adverse impact on mining and power companies). On the governance front, multiple instances of auditor resignations, excessive leverage, questionable “related party transactions” and accounting issues have recently come to the fore. Such issues may remain unattended for years. But once brought to the surface, it erodes the economic value of the businesses at one go. To sum up, investors can ignore ESG issues at their own peril.

Look at it another way: returns from equity funds are largely a function of the beta (market return) and the alpha that the fund manager generates above the market. Market return, in the long term, is dependent on the economy. Long-term sustainable growth of the economy comes only when businesses focus on sustainability. So, when large fund houses start focusing on ESG, it signals the companies to integrate sustainability in their business practices which, in turn, creates long-term win-win for all. Globally, large pension funds started putting pressure on fund managers to adopt ESG in their fund strategy.

Further, there is growing global evidence of better risk-adjusted performance of ESG strategies, which is also contributing to rapid growth in their assets under management. Even in India, the Nifty 100 ESG index has outperformed Nifty 100 index across time periods.

It has been challenging for us to implement the framework due to inadequate data availability. However, regulatory requirement of sustainability reporting now applicable to top 500 companies has helped. Over time, the policy nudge combined with better data and analytics will facilitate a more systematic approach towards it.

As part of the ESG framework, we look at around 50 parameters across the governance, environmental and social aspects, with the emphasis being in that sequence. These include energy and water consumption, carbon emissions, use of renewable energy, waste management, long-term impact of companies, products and business on environment and society, supply chain, relationship with workers, government and local community, among others. The relative importance of these parameters differs across sectors.

Advocacy is a critical part of responsible investing strategy and we work with several institutions to sensitize Indian companies as well as investors about the importance of ESG compliance for its long-term success. Over and above exercising voting rights, we actively engage with our investee companies on ESG-related matters.

The best preparation for tomorrow is doing your best today. Asset managers should pull up their values-based socks as the need to invest with an eye on environmental, social and governance issues will only get stronger.

(The article was originally published on Live Mint at – )


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Session on “Know your country” by Mr.G. Maran

Contributed By: Parvez Abbas, CFA


On July 13, 2019, the Delhi Chapter of the CFA Society India organized a session with Mr. G. Maran, Executive Director of Unifi Capital. The topic was ‘Know Your Country’. Mr Maran had a unique way of presenting. He along with his team had collated some interesting facts about India in a Q&A format. The audience were given 25 questions and three options to choose the correct answer. The questions were picked from various subjects about India. The idea was not to test knowledge but to help understand our country by knowing the past and current trends and how to interpret them to identify future winners. Mr. Maran, in his unique style, added data points and insights to every question. Some of the questions discussed are mentioned below:

Q: Which of the following has one of the Top 20 busiest airports in the world?

(a) Delhi (b) New York (c) Singapore

The answer is Delhi. Delhi airport handled ~69 million passengers last year. Delhi was not even in the list 10 years ago.

Q: Which is the 2nd largest Indian state in GDP?

(a) Gujarat b) Tamil Nadu c) Karnataka

The answer is Tamil Nadu though it does not have great industry like Gujarat and great services sector like Karnataka. However, Tamil Nadu invested in education. During 1960s and 70s, Tamil Nadu had 7% of the country’s population and ~23% of the colleges opened in the country. In 1993, the state had many districts with 100% literacy rate. Mr. Maran explained that with high literacy rate, life expectancy is high (~83 years in Tamil Nadu) and productive population age group (between 15 to 65 years) is high, which is a driver of GDP.

Q: India’s GDP derives 15:25:60 proportionately from agriculture, manufacturing and services. What proportion of our population is dependent on agriculture, manufacturing and services?

(a) 45:25:30 b) 60:20:20 c) 25:40:35

The answer is 45:25:30. At the time of independence the proportion was 60:15:25. At the time of independence, ~76% of the population was dependent on agriculture which was 60% of GDP.  Mr. Maran pointed out that the problem is 60% share in GDP has come down to 15% but still 45% of the population is dependent on agriculture. This translates to per capita income of just ~$700 in agriculture in stark contrast to ~$4000 per capita income in the services sector.

Q: India’s life expectancy rate is 68 years now. What was it when we got independence in 1947?

(a) 30 b) 50 c) 75

The answer is 31. Mr. Maran made the audience to think about the productivity of the country when on an average a person dies at the age of 31. Mr. Maran further explained the denominator bias. Of the people who survived at the age of 30-31, they lived longer and we conclude that life expectancy was higher during 40s and 50s which is not true.

Q: According to World Economic Forum, how many of the top 10 cities (GDP growth wise) in the world are from India?

(a) 3 b) 7 c) 10

The answer is, all 10 are from India. Mr. Maran told that the problem is only 1 out of 10 is from North India and none from East India. Most of these are from South India and they are growing at a higher rate compared to other cities of India.

Q: There are 6 countries in the world that has more land mass than India. India’s agricultural yield per land is less than world average. What is India’s rank in global agricultural output?

(a) 7 b) 17 c) 2

The answer is 2. Mr. Maran put a question to the audience how can we have 7th largest capacity and under-utilization of capacity but still the 2nd largest producer of product in the world. This is because of climate. The other 6 countries though larger in size but have less arable land.

Q: Oil is the largest net import item of India. Which is the second largest?

(a) Coal b) Gold c) Electronics

The answer is Electronics. Gold was the second largest item 3 years ago. Mr. Maran explained that electronics is the second largest because 2/3rd of India is aged below 34 and half of that is woman. Women are not buying as much gold compared to the prior generation and hence gold volume is declining. Mr. Maran said that we are living in the world of big data but many of the multibaggers come from small data. He advised if one understands that small piece of information one can know where to look for future returns.

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Through these questions, Mr. Maran touched upon various trends in the Indian economy. Mr. Maran talked about the middle-class population which forms 78th to 96th percentile of the population. Overall, there are 270 million households at an average of 4.9 persons per household. So middle class population is roughly 18% of households, which is close to 50 million. Even though this is just 18% of households, yet this is a huge consumer market in the world. He also talked about that only 14%-15% of India’s GDP is from exports and rest is from domestic. Yet, we get concerned about the health of the Indian economy thinking 56% of revenue of companies in the Sensex is from international markets. He advised that we should be concerned as an investor if the portfolio companies’ earnings are dependent on global events. A company which generates its revenue from the domestic economy would not be affected by global events. We give disproportionate importance to things that are less direct.

In 1991, direct tax revenue of India was less than Rs. 12,000 crs. ($260 billion GDP) but now it is ~11.5 lakh crs ($170 billion; $2.6 trillion GDP). Direct tax collection has improved dramatically through better compliance and increase in income levels.

He explained why many things that work in the global markets do not work in the Indian market because promoters are the dominant shareholding class. Only 2 out of Dow Jones 30 companies have promoter stake above 10% whereas more than 20 Sensex companies have promoter stake of more than 40%.

Mr. Maran concluded the presentation with an exercise for the audience. Each person has to choose a number between 1 to 100. The winner would be the one who has chosen 2/3rd of the number which majority chose. In 1997, this exercise was conducted by Nobel Prize winner Richard Thaler by publishing a letter in Financial Times newspaper. Mr. Maran told that he had conducted this exercise many a times and every time the answer comes close to a range. If majority chooses 67 then a person thinking one step ahead would choose around 44 (2/3rd of 67). A person thinking that majority would choose 44 by this logic would choose around 30 (2/3rd of 44). If majority chooses 50 then 2/3rd of that would be 33. So a person thinking one step ahead would choose 22. So, if one has to be a successful investor then one should think ahead of the rest. He explained with an example that if the average age of a home buyer is falling then a level one thinker would buy housing finance companies. A level two thinker would buy real estate companies and a level three thinker would buy ancillary companies.

Mr. Maran explained that in P/E ratio, earnings drive the price and not the other way round. Performance of a company drives perception. A good stock picker should have the skills to evaluate the earnings of a company. For earnings growth, one should know the drivers of earnings growth which means one has to think ahead of the majority.

Mr. Maran emphasized that trends keep on changing. In 1991 when India was less than half a trillion-dollar economy, steel, cement, power and textiles sector constituted more than 50% of the Sensex and financial services was just 3%. In 2004, when India was a $1 trillion economy the weightage of the above four sectors shrunk to ~20% of the Sensex. IT, pharma and engineering constituted 50% and financial services sector was less than 10%.  As of now, these three sectors constitute less than 20% of the Sensex and financial services sector is 40%. Mr. Maran said that we always see the leaders of the economy in the index. There are various elements of consumption that are extremely fragmented where leaders are emerging one by one.

In his closing remark, Mr. Maran advised the audience that if one is informed and familiar of the surroundings, an agile consumer and an average person with not a high intellect but a good temperament then one can become a good investor.

Link to the session video –

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Session by Mr. Neelkanth Mishra at Masters at Work (MAW) event, Kolkata-2019

Contributed by Soham Das, CFA

On 29th June 2019, Neelkanth Mishra took the stage to speak and shed light on the nature of the current economic slowdown. His topic, “A cyclical and not a structural slowdown” was written boldly on the top of an otherwise bland slide, with a blue patch running across it. Mr. Mishra, the Managing Director of Equity Research at Credit Suisse, brought a robust economic perspective to uncover the nascent trends in the Indian economy.


He started with a clear acknowledgement of the slowdown Indian economy is in. Investing community is reeling from a “sense of crisis”, he alluded to the crisis in Indian non-banking financial companies (NBFC). Yet he predicted that the slowdown is a cyclical one and not a structural one. However, he added ominously- that pain is not over yet. He pointed, that Chinese will not expect an 8% growth anymore. He added, that there is a structural slowdown and their size of the economy is a much tougher anchor to get rid of. “All “they” (read: China) are aiming for right now is 6%”, Mr. Mishra elaborated and added, “there is acknowledgement in the government circles, that 4% is where they will glide to”. Drawing a sharp contrast to our neighbor, he assured that India should be back expecting 8-8.5% in the next fifteen to eighteen months, albeit not without significant pain in the short term.

Surprisingly, Mr. Mishra observed a very astute and often ignored factor – that of state capacity.

His logic was ironclad. Earlier when India was 15th or 20th largest nation in the world in terms of GDP, there was a lot of lee-way in not building deep reforms. He reminded that India plucked low hanging reform fruits and triggered growth. But as India grows with a $3Tn economy keeping and sustaining an 8% growth will take a lot more effort from government, Mr. Mishra reminded the audience. Achievable? Yes, but will need work, he added cautiously. Indian government needs to expand its state capacity to deliver the next stage of reforms.

He further added, that while India’s tax to GDP is among the lowest in the world, the tax rate of the formal economy was at the highest levels, almost at par with OECD countries. This constrains the government to improve its “presence” in areas where it needs to. As a result the capacity of government to deliver the public goods is constrained.

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Broadly, Mr. Mishra structured his talk around three “pillars”- an acknowledgement of the slowdown, reasons why the slowdown is a “phase”, which too shall pass and the risks which can seriously jeopardize the unfolding growth story of India.

Pillar 1: India has slowed down

  1. Simmering Slowdown: Growth has clearly slowed and continued to weaken in Q1’19. The slowdown touched high value discretionary first, moving to low-value discretionary items and is firmly into the staples as well. However, the nature of the slowdown is not that of a “raging” forest fire, but more that of a slow-burning kind. The broad based indicators like fast moving consumer goods demand, oil and power demand etc. have tapered off.
  2. Fading Effects: An under-appreciated phenomenon in Indian macro-economic analyses is    the effect of Pay Commissions and its linkage to consumption. Each Pay Commission kickstarts a fresh cycle of consumption, as arrears are paid. Furthermore, instead of a one-time spike in consumption, such a revision creates a new normal for an extended period of time. Mr. Mishra observed that the effects of the 7th Pay Commission boosted consumption is fading,as increasing number of Indian states implement the recommendations of the commission. The last state to implement the recommendations was Maharashtra, which completed in Jan 2019As a result, we are right now at the fag end of the cycle and the consumption boost afforded by the Pay Commission is now waning.
  3. Credit Plumbing not functional: Credit creation has stopped with public sector banks (PSB) relinquishing their mandate to lend with government trying to reduce the dependence of economy on them, just like it successfully did in telecom with BSNL and MTNL. The vacuum left by PSBs were filled with NBFCs and Private Sector Banks. But with Private Sector Banks not wishing to grow beyond 2x GDP and NBFCs faltering in their stressed situation, credit supply has come to a halt. As a result, the growth in money supply(M3) has lagged GDP growth for the last 2 years.
  4. High Costs, Low Inflation: The only way, to boost credit growth is to cut the cost of credit, which Mr. Mishra eloquently pointed out is still 200-250bps higher than it should be. The key thrust of his logic was simple – even with inflation falling drastically, the rate of interest has barely budged.

Pillar 2: Cyclical and Not Structural

  1. Supply Chain Bullwhip: A slight fall in consumer demand creates huge fluctuations down the supply chain, which is what we are feeling right now. He posited that when consumption demand picks up, the “whip” will move the other way.
  2. Good omens in under-reported data: Financial savings is at a 9-year high and this is highly under-reported. Mr. Mishra, makes the point by drawing a contrast between two charts, one that is reported by private players and the other is government reported. What do the charts show? One chart, clearly showed a bar graph rising higher and higher with every successive period since 2014, with the last and the latest bar shooting up significantly. The metric? Mutual Fund Flows. Mutual Fund flows have consistently risen in the last few years and significantly accelerated in the last 5-6 quarters. The government reported numbers on financial savings are highly skewed and under-report the statistics with barely any ‘movement’ since 2014.
  3. Encouraging Private Capex Activity: Private capex is holding up and is expected to continue. While the growth mix of Indian economy is shifting towards investments, but the rate of capital formation in proportion to GDP has fallen.

Pillar 2.5: What government has to keep doing, to keep the growth on track

  1. Invest in roads: Roads have huge positive externalities, building and spurring growth in a region. Drawing comparisons between two villages, one which benefited from road linkages and one which didn’t, Mr. Mishra made it amply clear the reason why roads are catalysts of growth. Road linkages spurred an increase in land prices, access to urban markets and increase in gainful employment. As a result, he articulated that investing in road network has the ability to spur growth in a region.
  2. Invest in energy production: While China has a rural penetration of 95% in white goods, India has to reach that level and good quality electricity generation is prime need of the hour. Mr. Mishra later on added another dimension of the current energy paucity that India faces. With two thirds of Indian household dependent upon firewood, crop residue etc. to cook food, the loss to public health, environment and productivity is substantial.
  3. Invest in mobile connectivity: While our mobile penetration has skyrocketed, we are still 6-7 years behind Indonesia. With increasing primacy of data, any investment in connectivity will play out along Metcalfe’s Law of networks. Mr. Mishra highlighted that as India’s usage of phone screen time and social media explodes, so will growth opportunity by forming informal job networks. He posited, by 2020 about 96% of Indian population will be connected.

Pillar 3: Addressing risks to prevent the cyclical slowdown from becoming structural

  1. Government needs to invest significantly in energy production. India needs more energy and more dense forms of energy to facilitate growth. He articulated that, energy consumption and growth are highly interlinked, as productivity can be improved only if energy consumption and thus production increases. Mr. Mishra articulated that even though many would disagree, India still needs more coal fired thermal power plants as he quoted statistics on Indian per capita energy usage being roughly 31% of world average.
  2. Mr. Mishra rounded off, his talk by pithily summarizing the current credit crisis as that of the case of only one and half out of 5 credit guns firing- that of the private banks and “half” of NBFCs. The Public Sector Banks are growing significantly below industry needs and NBFCs/HFCs contributing to only 30% of credit demand in Indian markets.
  3. Growing Energy Bills: The energy import bill must be paid through by exports or capital inflows. But if prices are to keep growing at their historical pace of 2-4%, by 2021, the energy bill will be $165B. As exports are faltering and Indian capital inflows close to structural limits, energy costs pose a significant challenge.

Mr. Mishra, in summary, had a highly interesting story to tell. A story where Indian economy has faltered but not yet “out”, slowed down but not ground to a screeching halt, has lost momentum, but has not crashed. Credit and demand have slowed down; macro-economic policies that were poorly coordinated has added fuel to the fire.

Yet, he painted a picture of silent optimism, where he brought out statistics, made perceptive arguments and drew a vivid picture about the silent transformation that is currently underway in India. Be it from growing road networks to mobile networks, to energy networks. Be it increasing usage of cleaner fuels for household use or the agricultural surplus India is enjoying today. Yet, he cautioned, India also faces significant risks in the intermediate term. Exports are faltering, energy production has stagnated and financial system capacity is significantly constrained today.

For India, to break away from the current “orbit” of growth and push itself into a new normal, the government has to take care of energy production and energy costs. No more, can India rely only on imported energy. If it must, then it has to find ways to tackle the rising energy import bill. It was not difficult for the audience to understand what was at stake, if it doesn’t take care of the current energy drought. The conclusion was stark. A paucity in energy will keep India trapped in a paradigm of lower productivity than what can be achievable.

Like a fantastic story teller, Mr. Mishra weaved a narrative through dry economic facts, and painted a picture that spoke of his cautious optimism about the future of India.

Link to the session presentation –

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Session on “Bridge – The Ultimate Mind Game” by Mr. Sunil Varghese

Contributed By: Meera Siva, CFA

The markets may be likened to a casino – there is a lot of luck (or bad-luck) but a skillful player knows how to make the most of the cards dealt and come out ahead. So, there are many lessons a finance professional could pick up from the world of card games. Especially bridge game that has no betting. Warren Buffet famously said that he would not mind being in jail if his cell mates will play Bridge. Need we say more about its benefits to finance professionals?


At the CFA Society India, Chennai Chapter’s speaker event on August 9, 2019, Sunil Varghese spoke on this exciting game and its benefits. Sunil is an entrepreneur, TedX Speaker, Bridge Guru, Magician, Mentor for StartUps, Faculty and consultant. Did I say he is a magician?

He is also the Founder of MasterMind, which uses magic and innovative techniques – from launching a FMCG product in an unforgettable way or to drive the message home at the end of heavy seminars or sales conferences. He has been running a small-scale engineering firm for 28 years. Sunil holds a PGDM from IIM-Ahmedabad and a mechanical engineering degree from the College of Engineering, Thiruvanandapuram.

Why Bridge?

Bridge mirrors life (and finance) and playing it develops skills – risk analysis, probability, decision-making with incomplete information, planning and choosing the best from among alternatives. The game helps tap the right and the left brain and hence keeps the brain agile. Various studies show it helps enhance concentration, alertness and analytical ability. As it is a team game (played as two) it also helps understand human nature and psychology.

Unlike chess that takes a long time, the game is short (about 7 minutes). The game is touted by many professionals and leaders including Bill Gates. Many countries such as China, Norway and Holland encourage teaching the game in school for its many benefits.

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The game

Bridge is played with a regular deck of 52 cards. There are 2 players. North and South form a team and they play East-West. Players are given 13 cards each. Teams must not talk to each other. The aim is to win most ‘tricks’ (there are 13 total) by having your/your team-mate’s card as the highest ranked one.

There are further variants to the game, with one player playing open (giving an advantage to their team mate). And there is also trump.

To illustrate, the group played two rounds of game. And after each, the cards dealt were analyzed to figure out which strategy would have worked well and what it the most one could have got. For example, while everyone played the highest card (A), that was not quite the best strategy. Looking at how to make the lower ranked card (for example a 10) win a trick is what one had to think about. The important thing is to have a strategy first that one has put some thought into (for example, which cards would one lead the game with, which ones to risk when there is uncertainty).

Besides having a strategy and sticking to it (if it is rational, your teammate may also have the same strategy and there is alignment), being mindful and paying attention to what cards were played helps one redo the strategy and take some calculated risks. For example, the other team may play their hands differently and your original idea may not be tenable. You need to pivot, again with a strategy.

Three, it helps to be objective through this process. All the cards served are unique and there are infinite possibilities. So, it is fresh and old ideas, as in hoping to repeat a playbook from the past, will not get you very far.

What next?

There are many bridge clubs and associations that conduct tournaments. Learning and playing can be a great way to work-out your mind, well into old-age. And the skills you learn are immediately applicable as a finance professionals – be it in assessing risk, making decisions under uncertainty, sticking to a strategy, analyzing why your thesis did not work.


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Session by Mr. Sanjoy Bhattacharyya at Masters at Work (MAW) event, Kolkata-2019

Contributed by : Sidhant Daga


The rewards of good behavior: Where theory meets practice

The last speaker to grace the CFA Society India Kolkata Chapter’s marquee event was none other than Mr. Sanjoy Bhattacharyya(Managing Partner, Fortuna Capital) himself. Mr Bhattacharyya’s wise words compelled the audience to introspect about their inherent behavioral limitations. Mr. Bhattacharyya explained with great intricacy as to how one must put behavioral finance into practice. During his speech Mr. Bhattacharyya busted various myths, explained various behavioral errors we suffer from and also taught ways to overcome the same. Mr. Bhattacharyya credited his presentation’s (The rewards of good behavior: Where theory meets practice) ideas to Crosby, Zweig,Monteir and Maubossin.

Mr. Bhattacharyya started with a bold statement that “Bhav Bhagwan Che” is a myth. He stressed on how in the markets we need to work against human hardwired nature of seeking social approval. One must work against social coherence, become a rational contrarian to achieve success in the markets. He told how important an another 2008 is to make some handsome amount of money, as buying in the times of distress can help one gain spectacular returns.

The speaker busted few more myths, the myths being

  • Large caps are less risky than mid cap and small cap
  • You are good at a particular skill based on the community you come from

Mr. Bhattacharyya beautifully correlated research facts and how they impact people in the investment field. He told that how brain which is only 2-3% of the body weight consumes more than 25% of our energy and this is the reason why people try to find shortcuts while researching and picking stocks as everyone wants to avoid extra brain activity as we all are inherently lazy.

Mr. Bhattacharyya gave an important teaching, he told that he doesn’t and others should also not take investment decisions when they are going through the state of HALT ( Hunger , Anger , Loneliness , Tired)

The speaker mentioned how newcomers in the stock markets are always more bullish than the seasoned players, as they haven’t gone through a bear cycle, whereas, seasoned investors who have faced a bear market are cautious because their memory of the bear market haunts them.

One of the key statements he made during the course of his presentation was that “Sensible investing is not about finding multibaggers, it’s about managing risk.” He further elaborated on the concept of risk and subdivided risk into behavioural, market and business risk. One must be managing all 3 well to become successful as an investor.

According to the speaker, the crux of behavioural risk is defined by –

  • Ego– Mr. Bhattacharyya via practical examples showed how ego is the enemy of every investor. He via interactive questions to the audience showed how each one of us suffer from overconfidence which is a by-product of the ego inside us. According to him one must overcome ego to be more successful. The ways he mentioned to do the same are:
  • Diversify
  • Feynman Technique – figure out what you don’t know, educate yourself and teach it to a beginner.
  • Take the outside view, which depends more on probability and facts than convenience and personal experience.
  • Look for the right questions instead of looking for answers because market are uncertain and need a dynamic process
  • Doubt to stimulate through enquiry
  • Manage overconfidence
  • Avoid Confirmation Bias
  • Use the process of thesis – antithesis – synthesis

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  • Conservatism – Mr. Bhattacharyya explained how we prefer sameness over change, even if it is suboptimal because change requires cognitive effort, and has the potential for loss and regret if the decision of activity provides lesser returns than the decision of being status quo. Conservatism causes investors to hold losers too long and to overvalue stocks which they own. Mr. Bhattacharyya also explained how the conservatism bias goes hand in hand with the sunk cost fallacy. The ways to conquer conservatism as per the speaker are :
  • Evaluate risk in terms of long-term rewards rather than short-term harm. Smart Investors buy stocks which seem more risky to the average investor.
  • Portfolio Management should be rule based rather than discretionary
  • When you know your stock idea is a disaster, exit it, don’t seek advice from others
  • Banish the fear of losing
  • Be prepared for the worst. Decisions during the time of crisis should consist 3 elements- denial, deliberation and decisive action.
  • Practice logical thinking


  • Attention – Investors sometimes do not rely on information which is factually correct due to recency bias. They also suffer from information overload. In attention bias, the problem is that salience trumps probability when making investment decisions and leads one to rate the unfamiliar one as more risky and show a preference for the familiar regardless of their fundamental qualities. The ways by which Mr. Bhattacharyya guided to face this behavioral risk are :
  • Distinguish between signal and noise
  • Play the odds, ditch the story.
  • Look for simple solutions
  • Examine the deepest motivations behind your thoughts and actions and consistently seek feedback from those with diverse viewpoints
  • Emotion – Mr. Bhattacharyya explained how emotions play an important role in our investment decision making. Emotions cause investors to cut their gains fast, over bet, make irrational decisions etc.The ways by which one can keep their emotions under check as per the speaker are:
  • Meditate
  • Use the concept of RAIN ( Recognise, Ask, Investigate and Negotiate)
  • Automate your processes, use rule based investing
  • Try and understand your emotional state while making a decision

The Speaker interestingly differentiated between the role of luck and skill in the markets.



Book Recommendation – The Zurich Axioms by Max Gunther

The presentation by Mr. Bhattacharyya was followed by a short panel discussion moderated by Mr. Anirban Dutta(Director, Jet Age Securities). Viewpoints shared during the panel discussion –

  • On how one can be a rational contrarian – One can become a successful rational contrarian investor only when one takes contra bets in companies he/she understands. A deep understanding of the company is essential to take a bet opposite to the crowd, because without a deep understanding one cannot have a strong conviction.
  • On what test will Mr. Bhattacharyya take while choosing a fund manager – Mr. Bhattacharyya told that as per him, a personality and a stress test are the most important criteria, knowledge test being secondary ,as to him having a personality suited to withstand market pressure and still act wisely is important.
  • On how to remain happy in markets – Mr. Bhattacharyya advised the audience to not to get attached to money, if they want to remain happy in the markets. He simply said that the key is “If you have enough, great. And if you don’t, great.”

The link to Mr. Bhattacharyya’s complete presentation –


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CFA India Fintech Conference

CFA society organised second CFA India Fintech Conference in Bangaluru on March 8, 2019. Summary of key takeaways :

Session By Mr. Chris Skinner, Author of Digital Bank. Fintech a Global Perspective.

Contributed By – Sandeep Gupta, CIPM, CFA. Conference Co-chair

History of finance goes back 100’s of years with the Knights Templar and the creation of Switzerland as a country.  The rules and regulations created over centuries has led to the modern banking system. Technology cannot replace the rules and regulations that create the trust for cross border trade.

1st session

Chris feels that Banks will continue to be relevant and disagrees with Bill Gates Quote “We need banking, we do not need banks”. Banks may not be necessary for payments, loans, savings and credit. These are things that banks do. But the core of banking is creating a trusted store of value. Also acting as a trusted intermediary for exchange of that value with others that you do not trust. Crypto currencies is a wild west without regulations leading to frauds with no recourse. Regulations are required. Banks are not stupid. They are trying to innovate but it’s very hard.  However, we have to move from analog to digital. There is a great difference between digital and industrial banks. Digital banks are creating change and immense value without requiring as many  people.

Chris presented some interesting statistics on how Fintech and new age banks have caused a change for existing banks in number of employees and total Value. Those statistics seems to suggest that while No. of employees in traditional banks in 2018 vis a vis 2016 are on decreasing trend , this trend is on increasing side for Fintech and new age banks.

Stripe which is valued at $ 20 billion is basically 7 lines of code. It was setup only in 2011. In the same period, JP Morgan has also grown valuation phenomenally while reducing the number of people massively. J P Morgan is getting rid of stupid jobs. Anything that a machine can do is a stupid job.  Fintech communities connect and need not necessarily create.

Fintechs like Stripe makes certain processes at the traditional lenders non-competitive. Stripe is a B2B service which is invisible to customers. If you build an API, other people insert your code into their process and you get a share of the fees and can create immense value. The traditional business model of back office, middle office and front office at banks used to be integrated. Digital can pick-up one part of the process and do it better.

In the US P2P lending is regulated and is reducing the spread between borrowers and lenders. It has been reduced to 150 basis points vs. a difference of 400 basis points at traditional lenders. This makes traditional banks non-competitive. However the traditional bank back office has a wealth of data. But they cannot remain dumb with their data. JP Morgan software now does in seconds what took lawyers 360,000 hours of lawyers time. Every job that can be replaced with technology will be. People have to retrain and reskill. People will become trainers, explainers and sustainers of the technology.

Teams are growing smaller and example of Amazon was shared where they have a concept of a two pizza team. Any team that needs more than two pizzas for lunch is too big. Decisions are to be made faster. Banks are introducing digital when they need to make a cultural transformation and include it into their DNA. Legacy infrastructure and structures have to be regenerated. Technology is business and the business is technology. There can no longer be an IT Department. Data is not oil, a fossil fuel. It is like air which is all pervasive and essential.

Focus is to be on customers. Banks of the future will have different roles. A bank is an asset management company. Historically it was physical assets but in the future it will be digital. Facebook is also a digital vault. But how secure is it? Data is money and is valuable. It needs to be secured. Banks can play a key role in that area. Banks can be partners in life events of customers. Apps and API’s can play a major role in integration and can play a more holistic role. Banks can be a curator of multiple Fintechs.


Session By Mr. Kunal Shah, Founder Freecharge / Cred.The Evolving Payments Landscape

Contributed By – Sandeep Gupta, CIPM, CFA. Conference Co-chair

Kunal conducted a well-received session anecdotally without any slides. He highlighted that the lines of payments, banks, ecommerce, chat, smart phones, telecons, fintech are all blurring. He highlighted the power of increased distribution and creation of platforms.

2nd session

He gave an example of the English language which is the global platform of communication. India has benefitted from this platform. Platforms assimilate features. In the past the English did not have good numerical system and they used the inefficient Roman numerals. Trade was inefficient to conduct using roman numerals. The Indian / Arabic system was more efficient and replaced the roman numerals in the English Language. This is the core principle of how a product eats other products.


On disruption; he gave an example of Whatsapp payments. The consumers trust on Whatsapp is much more due to its ubiquity. So when Whatsapp launches payments as a feature, it can disrupt the entire landscape.  Whenever a large product which has a large distribution, decides to make a new feature; they wipe out an existing product. Example is digital cameras. A product “the cell phone” which was more distributed and in all our hands (most of the day) killed this product. A digital camera has now become an icon in our smart phones. In fact; most of the icons in our smart phones today are actually products that have been assimilated. Videos are now playing inside Whatsapp.

If potentially a telco which has 500 – 600 million customers decides to start lending; it can potentially disrupt banks. If a hardware company with 300 million devices decides to do investments and mutual funds; they have the distribution to disrupt traditional investment platforms. Some may argue that they do not have the capability. Capabilities can be bought. Distribution is critical. Today reaching 500 million customers is very easy. A telco can build this scale in 4-5 years. The world has become a efficient superconductor. Whenever a good joke is made; in less than 12 hours everyone knows it. Great ideas; jokes, bad news is spreading extremely fast. High distribution and trust can create new features into products very fast.

Malls today attract customers by organising events. Similar analogy was extended to temples of India in the past. The shops around the temple did well when the traffic to the temples increases. They used to compete with other temples. Similarly PayTM has a lot of Daily Average Users (DaU’s). They went into news as it attracts more people onto the platform. This creates scale and distribution reach. Tik-tok in China is loans company. Is it a social media company, fintech or a lending company.The lines are blurring.

On Crypto and money Kunal had the following views. Money is an imaginary concept and we have agreed to exchange goods and services based on this.  Demonetisation erodes the trust in the currency. Whenever a regime changes there is demonetisation. India has witnessed over 20 demonetisation events in its history. Currency is introduced through power. If the people don’t trust the regime, they will look at alternate methods of hoarding wealth. Gold creates interoperable trust acceptable by most. If the US government decides to launch its own crypto currency,people may shift to that because it is being endorsed by a powerful backer. Historically when a King adopted a religion; the people also adopted it.  Human behaviour moves from the rich, influential and powerful downwards to the poor. A brand like Kylie is transitioning from a personality to a brand which is trusted by people. Popular Instagram influencers are more effective than a TV Ad.

When there is lack of trust; it gets concentrated to a few trustworthy players who accumulate immense power. Countries with lower trust grow slower. Removing trust barriers is very important. Conglomerates exist in countries with low trust. A company like Tata can put its name across products and people will buy it. Similarly PayTm can now get into multiple businesses using the trust created and its distribution reach. Uber and Ola are not Taxi companies but Trust Companies. Air BnB is a trust company. Strangers can engage with each other without fear. A shoe brand also may not manufacture the shoe themselves; but the moment they put their brand on the product; customers can trust the quality.  Decentralisation is not needing a brand to create trust between two people. If humans can trust each other without requiring an intermediary, wealth will see a massive redistribution.

On the occasion of Women’s day Kunal mentioned that the participation of women in the workforce needs to be increased. Only 10 – 12 % of urban women are working. For a faster per capita growth of the country it is important to improve this metric.

On millennials, Kunal had an interesting insight. In every home there is a Chief Technology Officer who is between 14 – 18 years. That person is showing the rest of the family on how to use technology.The role of this 14 -18 year old is also shifting to that of the chief procurement officer. While the products are being designed for 40-year olds, the influencer is a 14 – 18 year old. Millennials are able to communicate effectively and this generation is disproportionately smarter than ones before.The delta is large because they were born with Internet. They have instant access to information from the internet. They prefer working for new age company and have a disdain for ‘Uncle’ companies.

The session was followed by a very interesting Q&A between Navneet Munot, CFA& Kunal Shah.

Some interesting snippets.

  • How many of us know what is our salary per hour. This is important to understand the value of time. If a company has an IT department, itcan never become a technology company.
  • Once you achieve distribution; companies can be created at will. Amazon was not a tech company. Because of their distribution reach; they were able to create AWS.
  • On innovation & regulations Kunal had an interesting retort. When the first knife was invented; it could have cut someone’s hand. However, it was not banned and we still use knives. Similarly, if Whatsapp has been used to spread fake news; it is not prudent to simply ban it.
  • MRP is bad for the country. Products should be charged more for the rich than what is charged for the poor. This is the ethos of capitalism. Anything else is socialism.
  • You cannot make money anymore from Payments. However, the distribution achieved through payments can be used for creating features that can make money.
  • All businesses are at risk due to cross sells.
  • Anyone who can predict the future more accurately will be able to make more wealth. Technology helps in this. No company is safe from disruption.


Session By Mr. Varun Dua, Acko. Insurance in the Digital Economy.

Contributed By – Sandeep Gupta, CIPM, CFA. Conference Co-chair

Key Issues Addressed were

  1. Overview of Indian Insurance Market
  2. What is digital Insurance & the role of technology
  3. How is Acko addressing the gaps in the market.

India is the 4th largest Auto Market in the world. India has only got 30 – 40 odd insurers which is very small compared to markets like China, USA etc who have many more (300 – 400). In India before privatisation there were only 4 PSU’s insurers. Hence the insurance industry in India is very young and has only developed over the last two decades. The penetration of Non-Life Insurance as % of GDP in India is very low (0.9%) currently. However the Market is growing rapidly at 22 % with the private sector outpacing the PSU’s many of whom are now ailing.

3rd session

The Role of Digital / Technology in Insurance can be segmented across 4 parts. Product, Price, Distribution and Claims. Initially in the first phase, digital has worked to put the existing products online. This was done by the likes of Policy Bazaar, cover fox etc.. In the future, the entire value chain is expected to move online. This will happen when data and analytics comes online. It can change the dynamics across all aspects of Product, Price, Distribution and Claims. The amount of data and intelligence that is available creates new products and the possibility of better pricing. The very nature of the product will change as digital can bridge the distance between the insurers and the insured.

The main costs of any insurance company are distribution, opex and claims. The distribution costs of 8 – 10 % cost in the traditional system can be brought down significantly through technology.  The same efficiency can be brought into opex. With regards to claims, the customer credibility can be established to put customers into green channels where claims can be settled more efficiently which has been a bane for traditional insurers.

The three challenges for insurance was Non availability of data leading to blanket underwriting, High Distribution Cost due to all new insurers chasing the same distributors and Investment float incomes (more of an AUM business) vs. an insurance play.

Acko is tackling these challenges by alternative distribution challenges. Better underwriting through better data and analysis. The key is to identify better customers. Acko is focussed on the insurance business and on how to acquire good customers. There are now 100 million insurance customers online in India. Acko have sold low value products of Rs 1 or 2 to over 18 million customers. Acko covers customers of Ola and they compensate passengers for things like missed flights etc. Acko captures detailed information like flight times, cab arrival timing etc. which powers their claims processing.  Another focus is Online Auto Insurance which currently is only 6 % of total market. This is expected to grow to 15 – 20 % in the next few years.

Availability of data through multiple sources of information like Amazon, Ola etc. can help price products better in future. As an example; if a customer is using Ola & Uber more than 25 times a month, he deserves a better insurance premium on his car which is not being used much. Trustworthy customers should get their claims processed immediately. In the US; facial recognition that can detect truth vs lie’s is being used to process claims instantaneously.

The world of insurance is evolving rapidly and the existing players may soon face a Blackberry Moment.



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